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Unemployment Rate Outline
Calculating the unemployment rate
CNIP = civilian non-institutionalized population
CNIP = Population - military - institutionalized - under 16 years old
CNIP = employed + unemployed + out of the labor force
LF (labor force) = employed + unemployed
Unemployment Rate = unemployed / labor force
To be unemployed one must be (1) not working
(2) able to work
(3) in the CNIP
(4) actively seeking employment.
1. What are some of the social problems of unemployment?
How does being unemployed effect individuals?
How does being unemployed effect society?
2. How have some of the recent trends affected the labor market?
The decline of unions- reduction in demand for automobiles
Immigration
Changes in the minimum wage
Reductions in welfare benefits
Women in the Labor Force
3. Who demands labor?
4. Who supplies labor?
5. What are the types of unemployment? Briefly explain the below types.
Frictional – search, had offers but still waiting for a better one
Seasonal – beach workers, ski slope employees
Cyclical – when the economy does well employment rises, recessions cause
unemployment to rise
Structural – untrained workers, need time to make adjustments. Plenty of jobs in health
care, but this person is trained to be a coal minor
6. What are the measurement problems with unemployment? Briefly explain why the items listed
below cause measurement problems for the unemployment rate.
Part-time workers – would like a full time job, but had to settle for part-time
Moonlighters – two jobs, but only counts as one for the Dept of Labor
Underemployed – engineer working at McDonalds
Liars – being paid under the table
Discouraged Workers – would take a job if offered one, but not going to look anymore
Notes on Inflation
Inflation is a chronic increase in average prices over time.
Who cares about inflation?
Measures of Inflation
Consumer Price Index changes in the cost of goods that consumers’ purchase
Producer Price Index changes in the prices of goods that producers’ purchase
Medical Price Index changes in the price of medical goods and services
What is deflation?
How is inflation calculated?
Monthly Costs in Charlotte
Housing
Utilities
Car
Insurance
Entertainment
Electronic Goods
Food
2007
1700
400
329
120
80
130
247
2008
1750
410
339
128
85
119
238
Calculate the rate of inflation for Charlotte in 2008.
What year is the base year?
How do Charlotte prices compare to New York prices? Assume New York’s CPI is 3300 in
2008.
What are the negative effects of inflation on the economy?
decreases purchasing power
increases interest rates
creates uncertainty
bracket creep
What is the difference between real wages and nominal wages?
What are the causes of inflation?
demand pull
cost push
increases in the money supply
How does the US compare to other countries?
from the Economist
Comparisons over time
How does productivity affect inflation?
How does international trade affect inflation?
How do oil prices affect inflation?
Outline of GDP Notes
Gross Domestic Product is the market value of all final goods and services produced within a
given country in a given time period.
Real versus Nominal GDP
Purpose for measuring the GDP
Comparisons over time how do we compare to previous generations
Comparisons across countries how do we currently compare to other countries
GDP per capita
Purchasing Power Parity
Measuring GDP
Expenditure Approach
C+I+G+X-M = GDP open economy
C+I+G = GDP closed economy
Consumption
Investment
Government Spending
Trade (Exports – Imports)
Trade Deficit, Trade Surplus, Balance of Trade
Balancing the Budget (Government Spending – Tax Revenue)
Government Budget Deficit, Government Budget Surplus, Balanced Budget
Income Approach
C+S+T+f = GDP open economy
C+S+T = GDP closed economy
Measurement Problems
Non-market activities
Inventories
Illegal activities
Double Counting
International Measurement dealing with Multinational Firms
The Business Cycle – the change in real GDP over time (the 3 percent growth goal)
Expansions
Growth Recessions
Recessions
Trade notes outline
Current Trade Issues
Factors that impact trade
Laws – tariffs, quotas
Taxes
Relationships
Environment
Exchange rates
Pros
Lower prices
Better quality goods
Allows domestic workers to specialize
Allows domestic workers to pursue other occupations
Increase in government revenue
Cons
Loss of jobs
Loss of profits and wealth
Retraining
What factors affect trade?
The value of the dollar
If the dollar is strong, like it is now, American dollars can buy more foreign goods, foreign
currencies can not buy as much American goods. Therefore, if the value of the dollar increases
imports rise and exports fall. What happens to GDP? Holding everything else constant, it falls.
What factors affect the value of the dollar? Demand and supply of dollars.
The GDP of other countries.
If a country’s income (GDP) rises, their demand for all goods, including foreign goods will rise.
Or if a countries income (GDP) falls their demand for all goods will fall.
Relative GPD changes make a difference. If the US GDP is rising by more than one Canada’s
GDP then Canadians will not spend as much on US goods, as US will spend on Canadian goods.
Trade Agreements
Discussed in class. Free trade increases imports and exports.
GENERAL INFORMATION
If exports increase, holding imports constant, GDP will rise.
If imports increase, holding exports constant, GDP will fall.
X increases and M increases, the change in GDP is uncertain
Notes on the National Debt
The Outstanding Public Debt as of 17 Nov 2008 at 05:39:29 PM GMT is:
The estimated population of the United States is 305,111,595
so each citizen's share of this debt is $34,719.11.
The National Debt has continued to increase an average of
$3.81 billion per day since September 28, 2007!
http://www.brillig.com/debt_clock/faq.html
The National Debt is the sum of all over spending by the government. This includes budget
spending and off-budget spending.
The value of the debt is over $10.5 trillion. The interest payment on this debt is over $330
billion.
Who does the government owe the money to?
Like anyone who borrows money, the government owes money to their creditors.
Percentage of the debt owed to various groups.
Private Companies
Mutual funds
Banks
Individuals
Foreigners (24%)
58%
Government
42%
US Treasury Trust Fund (20%)
Federal Reserve Bank (8%)
Banks and Investment firms wait in line to lend the US Government money.
How is the money moved from these groups to the US Government?
These groups give money to the government, and the government gives them US Treasury
Bonds. These bonds are IOUs from the government.
Where does the money go?
The government spends the money. When they need money to pay their creditors (the people
who lend them money) they borrow money from one group and give the money to another. It’s
like you owing using one credit card to pay off another credit card.
One place the money goes is the Social Security Trust Fund.
The workers in this country pay over $600 billion in social security taxes. Most of this money,
say $550 billion goes to the current recipients of social security. The excess $50 billion goes to
the US Treasury Department. They give this money to Congress to spend. Then, the US Treasury
Dept issues a $50 billion bond (IOU) to the Social Security Trust Fund (also known as the US
Treasury Trust Fund). So the Trust fund holds this bond.
There is approximately 2 trillion in this Trust Fund. Picture this stack of IOUs.
So what’s the problem?
When the Baby Boomers retire, the contributions will decrease and the payouts will increase. So
there will be no more money going into the Trust Fund.
In fact, the government will need to pay some of their IOUs to cover the amount owed to the
Social Security recipients.
Where will the money come from?
1. The government will have to borrow money from some group to pay the recipients. Who
will they borrow it from? Savers. Who saves? The working people.
2. The government can increase taxes to get money. Who will pay the taxes? The working
people.
What is the solution? Should we be worried?
They just have to start balancing the budget, eventually as income rises, the percentage of
debt to income will decrease. Keep making the interest payment.
What is the relationship between debt and interest rates?
Increase in debt increases the demand for Loanable funds and increases interest rates.
Off Budget spending is counted in the debt but not reported as part of the annual deficit.
Types of Treasury Securities
T-Bills 13 weeks to 52 weeks in maturity
T-notes 2 – 9 years in maturity
T-bonds 10-30 years in maturity
International Borrowing by U.S.
Government
MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
(in billions of dollars)
HOLDINGS AT END OF PERIOD
Jul
2008
Country
-----Japan
China, Mainland
United Kingdom 2/
Oil Exporters 3/
Brazil
Carib Bnkng Ctrs 4/
Luxembourg
Russia
Hong Kong
Switzerland
Taiwan
Norway
Germany
Mexico
Korea
Turkey
Thailand
Singapore
Canada
Netherlands
Poland
Egypt
Chile
India
Sweden
Belgium
Ireland
All Other
Grand Total
593.4
518.7
290.8
173.9
148.4
133.5
75.8
74.1
60.6
45.1
42.3
41.8
41.1
36
35.3
32.4
31.8
31.4
26.6
14.9
13.9
13.4
13.1
13
12.4
12
11.2
139.5
2676.4
Jun
2008
-----583.8
503.8
280.4
170.4
151.6
122.4
88.6
65.3
61.2
44.4
40.9
43.3
40.9
42.5
36.5
30.3
32.4
30.4
28.4
15.1
13.3
12.3
11.7
11.7
12.4
12.4
14.2
145.8
2646.5
May
2008
-----578.7
506.8
272.5
164.3
151.4
104.7
80.4
63.7
61.4
42.1
40.1
47.1
45
40.4
38.5
28.9
32.8
30.6
30.3
15.7
12.4
12.8
11.1
10.3
13.2
12.4
15.8
147.7
2611.2
Apr
2008
-----592.2
502
247.8
153.9
149.5
115.4
84.8
60.2
63.2
42.5
42.6
45.3
43.7
38
40.5
31.1
27.9
33.5
25.9
15.5
12.5
12.7
10.1
10.5
13.1
12.5
18.5
148.6
2594.1
Mar
2008
-----600.7
490.6
201.1
150.8
149.1
107.1
92.7
42.4
60.6
41.2
41.2
44.5
42.2
38.8
40.7
28.7
25.7
33.3
22
15.1
11.6
12.7
9.7
11.8
13.2
12.8
17.8
155.4
2513.8
Feb
2008
-----586.6
486.9
181.1
146.1
146.6
103
83.1
38.4
57.5
39.4
38.8
34
42.2
36.5
41.4
28.5
30.5
33.5
22.7
14.1
10.2
12
8.6
14.4
13.6
13.2
15.6
155.6
2434.1
Jan
2008
-----586.9
492.6
161.9
140.9
141.7
108.1
68.4
35.2
54.4
39.3
38.9
33.6
42.7
35.6
42.1
28.2
28.9
38.6
24.4
15.9
10.3
11.6
9
14.6
13.4
13.1
15.6
157.8
2403.8
Dec
2007
-----581.2
477.6
158.1
137.9
129.9
116.4
69.7
32.7
51.2
38.9
38.2
26.2
41.7
34.4
39.2
25.6
27.4
39.8
18.7
15.2
12.9
10.4
8.7
14.9
13.7
13.2
18.7
160.6
2353.2
Nov
2007
-----590.9
458.9
174.3
138.7
121.7
107.4
68.3
33.5
51.7
38.1
37.1
27.6
39.1
32
37.8
25.6
27.5
40.2
24.1
14.2
11.1
10.6
8.5
14.8
14.1
14.2
17.5
157.7
2337.1
Oct
2007
-----601.7
459.1
155
141.6
113.9
105.6
63.3
33.6
51.3
37.8
40.7
25.5
41.8
30.5
37
28.1
22.8
38.8
15.9
14.8
9.8
9.9
7.5
14.9
14.5
14.6
17
152.1
2299.2
Sep
2007
-----591.9
467.7
120.3
137.1
110.5
99.1
58.4
31.8
52.6
37
39.9
22.9
41.8
30
39.4
28.3
24.7
36.6
17.3
15.1
10.6
9.9
6.8
10.8
14.8
14.6
16.3
149.4
2235.3
Aug
2007
------
Jul
2007
------
595.8
471.2
99.8
134.7
107.7
103.8
57.1
31.9
53.2
37.4
39.5
6.4-42.3
30.2
42.6
29.2
22.9
37.8
18.8
16.6
10.5
10.1
7.6
12.1
15.7
14.6
16.8
151.1
2217.5
620.6
480
67.3
134.7
105.8
70.7
57.6
35.9
55.9
37.2
44.6
41.7
34.9
44.4
28.5
22.5
36.3
23.3
15.7
11.1
10.2
7.4
14.1
15.5
15.4
15.6
154.3
2201